Episode 89: How Do I Know Which Tax Bracket I’m In?
Have your question answered on the Money Wisdom Question Series!
Tax time is upon us! Welcome back to our Money Wisdom Question Series, I’m Nick Colantuono, CFP® and today’s question is, “how do you know which tax bracket you’re in and how do you know the rates that you have to pay?”
The Higher the Income, the Higher the Taxes
Well look, tax brackets all come down to income. The more income you have, the higher the tax will be on those higher dollar amounts of income. I will say, the good thing about our tax structure here in the United States is that it’s graduated. So if you have the majority of your money maybe taxed at 12% and you go over that tax bracket, it’s not like those new tax rates, the 22% or the 24% bracket, get retroactively applied all the way back to dollar 1. Only those dollar amounts in those higher brackets get applied the higher bracket.
Income Sources & Deductions
The easiest way to think about taxes is to take all your sources of income, whether it’s earned income, 1099 income, W-2 income, Social Security, any distributions you took from IRAs, anything that either applies to earned income or what is known as ordinary income. What you then do is take all your deductions. Are you single? Are you married? Do you have children? Do you have dependents? Did you make any IRA, 401(k) or retirement plan contributions? Did you pay any real estate taxes? Do you have mortgage interest? The easiest way to think about this is to take all your income, minus all your deductions, and those dollar amounts are going to hit different brackets.
Tax Brackets
The first bracket is 10%, the next bracket is 12%, there’s then a pretty significant jump where you go from the 12% Federal bracket up to a 22% Federal bracket. Beyond that, as you get higher income amounts you go 24%, then 32% and then 35%. Again, this is how you want to do the calculations when trying to figure out “what tax bracket am I in?” Then as a result, “what’s my tax rate?” Keep in mind that different levels of income will have different rates associated with them, so when calculating your overall tax rate, it’s not just about how much income you have, it’s in which bracket does the majority of your income fall?
Download Now
Tax Explorer
Paying taxes is painful – but not nearly as bad as not having the funds to enjoy your retirement. This guide contains 10 strategies that could help minimize taxes on your retirement income.
Information presented in our podcasts is considered current as of the created date. Over time, some information presented may become stale. We recommend you consult with your Financial Professional before making any changes based on information contained here.
Johnson Brunetti is a marketing name for the businesses of JB Capital and JN Financial.
Investment Advisory Services offered through JB Capital, LLC. Insurance Products offered through JN Financial, LLC.
The guarantees provided by any type of insurance contract are based on the claims-paying ability of the insurance company.
Related Resources
-
Staying Ahead of the Tax Curve
Retirement doesn’t mean you stop paying taxes – but there are ways to minimize the bite in the long run. With thoughtful, proactive tax planning, you can stay ahead of the curve and keep more of w… -
What’s the Best Age to Start Taking RMDs?
Is it better to take your required minimum distribution (RMD) sooner rather than later? While the IRS determines when you must begin taking RMDs, you may benefit from taking them earlier. An RM… -
Should I Downsize My Home for Retirement?
Equity is on the minds of many pre-retirees and retirees today, more specifically: Should I downsize my home in retirement? And if so, when is the right time to do it? In this week’s Money Wisd… -
How Can You Protect Your Retirement Assets for Your Family?
When you’re focused on planning for retirement, it’s easy to overlook how you can protect your assets for both yourself and your family. While there’s no one-size-fits-all approach, your first ste… -
What Level of Risk Is Right for Your Retirement Plan?
In this week’s Money Wisdom Question Series, Ian Fergusson, RICP® addresses a fundamental concern for anyone approaching or in retirement: What level of risk is appropriate for my retirement plan?… -
What Estate Planning Steps Should I Take?
With retirement on the horizon, you may be wondering what steps you should be taking from an estate planning standpoint. At its core, there are three key estate planning considerations to keep in … -
Podcast 407: Is My Social Security Income Taxable?
Prefer to watch? Click here to watch and listen on YouTube. A common misconception about Social Security is that whether your benefits are taxed depends on the state you live in. While state ta… -
How Can I Protect My Retirement Savings from Market Volatility?
We’ve been receiving a lot of questions lately about how to best protect your retirement savings against stock market volatility. It’s easy to let recent fluctuations in the market shake your conf… -
Avoiding the Retirement Tax Trap
Once you retire, understanding your tax implications becomes even more crucial. After all, taxes don’t disappear in retirement. In fact, as you begin withdrawing from your retirement savings, you … -
Podcast Episode 405: The Retirement Tax Trap
Prefer to watch? Click here to watch and listen on YouTube. The term “tax trap” comes from the misconception that you’ll need less income in retirement, so you’ll pay lower taxes. This leads ma…